Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 3, 1995 TAG: 9509010028
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: S.D. HARRINGTON STAFF WRITER
DATELINE: LENGTH: Long
Amid much hype and hoopla, the 1996 Ford Taurus and Mercury Sable the workers had supplied parts to build were sitting right in front of them.
Wynn's Precision Inc., which makes upper and lower intake manifold gaskets for Ford Motor Co., got its sneak preview in early August as part of Ford's "We Had a Hand in It" tour, which made stops at Ford plants and suppliers across the country.
Not since the inception of the Taurus in 1985 has a car been so highly anticipated by the auto industry. The big question is whether the buying public can generate as much excitement over a major overhaul of what for three years has been America's best-selling car.
And the gamble is whether buyers will be turned off by the new model's streamlined oval shape and other changes in a car that has helped re-establish the prominence of American automakers in the global marketplace. Ford, which in a decade has sold about 3.3 million Taurus cars, is spending $110 million to market the new Taurus.
Toward the end of every summer, automobile manufacturers begin pushing their new line. It's what they call the new model year, and it traditionally begins in September and October.
Taurus is only one example of a marketing blitz for 1996 models that feature significant, and perhaps risky, changes in popular cars.
General Motors Corp. redesigned its Saturn for the first time since the car was introduced in 1990.
And Dodge is unveiling a new version of its best-selling minivan, the Caravan.
For local dealers, who on average stock their showrooms with a 60-day supply of vehicles at any given time, the new model year means out with the '95 models and in with the '96 models.
But the process isn't quite as easy as it seems. Just as a grocer must sell his fresh supply of bread before he loses profit, a dealer must turn over inventory because of the high costs of keeping vehicles in stock.
In addition, dealers must make sure they have the right cars on their lots to make a model year financially successful. If the cars don't sell, they're stuck paying interest on them until they do.
Finding the right balance of inventory and competing with other dealers for the market supply is what makes the business so risky, dealers say.
"We're at the mercy of the manufacturer," said Bill Pinkerton, owner of Pinkerton Chevrolet-Geo in Salem. "We can't always get all that we want."
Bill Johnson, owner of Magic City Ford in Roanoke, said that an increase in models offered by the manufacturers has made it tougher for dealers to balance inventories.
Selecting the models the public wants makes for a risky business, he said.
"It's a juggling act," Johnson said. "There is so much new product available for consumers to choose from.
Because of consumer demand, Johnson said, "When you make product available, that forces dealers to buy more inventory."
For example, Ford's F-series trucks have short beds or long beds. There are four versions of the same truck.
Dealers have to know which models will sell in a particular region, Johnson said.
"In our area, the 4-wheel-drive Ford Explorer is one of the best sellers," he said. "Ford also makes a 2-wheel-drive Explorer that doesn't do well in our market" because of the terrain.
But the complexity doesn't stop there.
Bob Kaplan, vice president of Dominion Dodge in Salem, said he has to prove to Chrysler Corp. that he can sell the cars before they will build them.
"That's one of the things most consumers just don't understand," Kaplan said. "A manufacturer can't just build and build."
Automakers instead allocate a set number of vehicles to dealers based on each dealer's previous sales.
For example, a dealer who has 20 of a particular model in stock and sells 10 of those in one month is counted by the manufacturer to have a 60-day supply of that model, Kaplan said. Chrysler bases its calculations on weekly sales.
"The manufacturer looks at what they can build based on the rate of sales" of the dealer, he said. Chrysler also bases allocation on how many of that particular model the dealer has on the lot and whether the rate of sales is comparable to other Chrysler dealers' in the same area.
Kaplan said although he may have sold 25 Dodge Caravans in a given week, another dealer in Western Virginia may have sold 50. That would affect the number of Caravans that Kaplan is allotted.
When Chrysler allocates a set number of a particular model, the dealer then has the option to purchase as many vehicles as he wants up to that number.
"There's always some models you wish you could get more of," Kaplan said.
To make the most of the allocation process, some dealers will stockpile their inventory during slow sales months - historically December to February, Kaplan said.
Although this can be costly to the dealer, Kaplan said the strategy works out in the long run because the manufacturer is limited to what it can produce when sales pick up again, generally when warmer weather comes in the spring.
Instead of streamlining inventory during those months, he said, it is wise to keep supply. "That may be allocation you can never replace in the dead of summer," he said.
But the more dealers order, the more risk they take.
"There is so much risk in the business to start with," said Johnson of Magic City Ford. He remembered the increase of gasoline prices in the 1970s which caused a dramatic shift in the automobile market to a higher demand for fuel-efficient cars.
"There obviously is a risk," said Kaplan, who normally orders inventory four weeks prior to shipment.
"We could have a spark in the Middle East" that would cause gasoline prices to go up, he said. "All these things affect people's attitudes toward big ticket items."
Overall, however, dealers say manufacturers are becoming more sympathetic toward their situation.
"The factories have made it a lot easier to stock vehicles," said Mike Cox, new-car sales manager at Hart Motor Co. Inc. in Salem.
Oldsmobile, he said, sells its models in two series, one with a moderate number of options and the other with a full package of extra features.
"In other words, you don't have to stock as many vehicles," Cox said.
Pinkerton said Chevrolet has also begun to cut back on the number of models available, which makes it easier for dealers to balance their inventory.
Kaplan also said Chrysler has taken steps to increase fairness of vehicle allocation.
Before switching about two years ago to its method based on weekly sales, he said, allocation was based on a monthly sales.
It was a much less sophisticated method, Kaplan said, and didn't give the dealer instantaneous feedback on what was available.
The current method "can be more accurate," he said.
But in the long run, computer statistics will never replace old-fashioned intellect when it comes to predicting what cars will sell, Kaplan said.
"We've got to make sure the vehicles we have on our lot are the most saleable," Kaplan said. "Something as simple as color" can affect a consumer's purchasing habits.
Kaplan said he remembers a time about 20 years ago when all car manufacturers and dealers would generate more hype over cars at the start of the new model year.
"There was a time when dealers would hide them behind buildings and cover them with tarps," Kaplan said.
Now, because of economic factors in the automobile market, Kaplan said the auto industry can't afford to wait until September to show off all its new models.
If Chrysler is ready to build the Caravan in February, he said, and they wait until the traditional start of the model year, they may have lost the opportunity to manufacture 150,000 to 170,000 vehicles.
And because of fixed costs such as labor, the manufacturer can't afford to wait.
For example, Kaplan said, the Taurus was introduced by Ford in December. Dodge unveiled the popular Neon in January and its Caravan in February.
The "new model year" is all but gone, he said. "I think those days are past and behind us."
by CNB